Peel, who will be winning his 72nd cap, comes in to replace Gareth Cooper -- who was due to face the Wallabies for Cardiff on Tuesday evening -- in the only change from the XV that started the 33-16 win over Argentina at the weekend.
Scarlets scrum half Martin Roberts takes up Peel's position on the bench in the one other change to the match-day 22, in which there is no place for Lions centre Tom Shanklin, who missed the Argentina match with a broken nose.
Head coach Warren Gatland said he wants to see another dynamic display from his forwards, who got the better of Argentina's much-admired pack.
"We were pretty pleased with the performance against Argentina, we matched them up front, our defence held up well and we are starting to show a more clinical edge in attack," Gatland said.
Gatland added: "There is still improvement left in us and we feel we need to go up a couple more gears if we are to achieve what we want against Australia, but we are coming to the end of the Series and the players feel they are starting to get into their stride.
"The level of performance is improving throughout the squad as we spend more and more time together and we hope to get a little nearer the peak of our powers at the weekend."
Wales have beaten Australia twice and registered one draw in their last six meetings, although Gatland acknowledged that the tourists will have a point to prove following their unexpected 9-8 defeat by Scotland at Murrayfield on Saturday.
"They will be gunning for us but this Wales squad hasn't feared Australia, has had some success in recent history and enjoys playing them in what are always tough encounters," Gatland added.
"The Wallabies were incredibly unlucky last weekend and they won't want a repeat of that losing experience in Cardiff. They may be coming to the end of a long and gruelling tour, but they won't allow themselves to have one eye on that plane back to the Australian summer, until they have thrown everything at us and emptied the tank at the Millennium Stadium.
"They are one of the top three teams in world rugby and we have no right to expect anything other than the sternest of tests - both physically and mentally - on Saturday, but we feel we are up to it."
James Hook; Leigh Halfpenny, Jamie Roberts, Jonathan Davies, Shane Williams; Stephen Jones, Dwayne Peel; Ryan Jones (captain) Martyn Williams, Andy Powell; Luke Charteris Alun-Wyn Jones; Paul James, Matthew Rees, Gethin Jenkins
Source: AFP Global Edition